Taxpayer Limitations

Taxpayer Limitations
Taxpayer limitations 
When does the three-year assessment period in Sec. 6501(a) begin? How long does a taxpayer have to file a claim for refund under Sec. 6511(a)? What if a taxpayer has an approved extension to Oct. 15, 2020? What if the Oct. 15, 2020, extension was postponed for a natural disaster? These questions can vex practitioners in a normal year, but in 2020, the IRS postponed the April 15 statutory filing and payment deadline to July 15, 2020 (see Notice 2020-23). How does this unusual postponement affect the start date for the assessment or refund claim statute of limitation period?

It is critical to know how and from what start date to count because the authority to assess tax and the taxpayer’s ability to file a timely refund claim for paid tax is calculated based upon when these statutes commence. This column reviews the basic rules of statutory due dates, extensions, refund limitations, and postponements, and how to determine the statute of limitation in the context of taxpayer deadlines affected by the events of calendar year 2020.

Statutory due dates: Extensions, Saturday, Sunday, or legal holiday

Federal income tax returns for calendar-year filers are due April 15 of the year following the close of the calendar year. This statutory due date cannot be changed by the IRS. However, the IRS may grant an extension of time to file a return to Oct. 15. The extension does not change the April 15 statutory due date, but rather it means such a return is still considered timely filed if it is filed within the approved extension period. If the statutory due date or authorized extended filing date falls on a Saturday, Sunday, or legal holiday, then a return is considered timely filed on the next day that is not a Saturday, Sunday, or legal holiday.

Limitations on assessment and collection

A common misunderstanding is that the three-year assessment statute of limitation period commences from an extended filing date — whether caused by a weekend, legal holiday, or authorized extension. However, the general rule is that the assessment period under begins on the date the return is “actually filed” regardless of the statutorily prescribed due date or an extended filing date. The only exception is for an early-filed return, which is deemed to be filed on the last statutorily prescribed day (Sec. 6501(b)(1)). In the above example, this means a return filed April 1 is deemed to have been filed on April 15, regardless of whether April 15 is a weekend or a legal holiday. But if the return is filed on Tuesday, April 17 (because April 15 is a Sunday and April 16 is a legal holiday), then it is considered timely filed for purposes of the statutory due date, but the three-year assessment period runs from April 17 — the date of actual filing. If the taxpayer in this example had an authorized six-month extension to Oct. 15 but filed on June 1, then the three-year assessment period runs from June 1. It does not run from Oct. 15, April 17, or April 15.

Limitations on credit or refund

The start date for counting the assessment statute of limitation period also tells the taxpayer the general three-year statute of limitation for filing a refund claim under Sec. 6511(a). A claim for refund must be filed within three years from the date “the return was filed” or two years from the time the tax was paid, whichever is later due extension would likewise be due three years from the actual date filed, not from the extended Oct. 15 date, unless the return was filed on Oct. 15.

Postponement: Calendar year 2020

In 2020, the IRS postponed the April 15, 2020, statutory due date for filing returns and paying taxes due for tax year 2019 to July 15, 2020. A postponement under Sec. 7508A is another form of authorized delay, but it is not an extension. The IRS may specify a period of up to one year that may be disregarded in performing certain acts for taxpayers affected by a federally declared disaster (Sec. 7508A; see also Rev. Proc. 2018-58). Like a weekend, legal holiday, or authorized extension, a postponed date under Sec. 7508A allows a return or a refund claim to be considered timely filed if it is filed by the postponed date (Regs. Sec. 301.7508A-1(b)(4)).

When would the three-year assessment period begin, and when does a refund claim timely for tax year 2019? Returns filed before April 15, 2020, are deemed filed on that date, so both the assessment and refund filing statutes would begin April 15, 2020, regardless of the postponement or any authorized extension. A refund claim must be filed by April 17, 2023 (because April 15, 2023, falls on a Saturday). If the initial return is filed between April 16 and July 15, 2020, then both statutes begin on the exact date the return is filed. (The return for purposes of Sec. 6511 is the initial return.